In a time of great upheaval, the longer term has grow to be increasingly uncertain. Scenario planning is an important method tailored to such times. Unlike traditional forecasting, which relies on historical data to predict the longer term, scenario planning uses imagination to discover the longer term.
As the world becomes more complex, strategic foresight methods cover a wider range of future scenarios. Scenario planning shifts the main target from prediction to preparation, allowing us to ascertain multiple outcomes and construct resilience to uncertainty.
Systemic disruptions force us to grapple with the inherent unpredictability of the longer term, underscoring the importance of scenario planning and foresight, each of which prioritize imagination. But most of us aren’t naturally inclined to grapple with change. John Maynard Keynes put it this fashion in 1937: “The idea that the future might be different from the present is so contrary to our conventional way of thinking and behaving that most of us have great resistance to putting it into practice.”
The term “metaeruptions”, coined by Institute for Disruptive Futuredescribes multidimensional systemic disturbances that stretch beyond the initial impacts. Understanding these disturbances requires a creative approach as traditional data analytics are insufficient. Scenario planning, originally developed within the Nineteen Fifties and refined within the Seventies, provides a framework for examining different future scenarios and their impacts.
In 1982 John Naisbitt defined “megatrends” as large, transformative processes with global reach and significant impact. However, trends are reflections of the past, and extrapolating them will be dangerous. Disruption marks the top of trends and forces us to cope with unpredictability. This is where imagination is a superior tool.
Foresight vs. Forecast
Foresight is a critical discipline that examines plausible future scenarios to discover emerging challenges and opportunities, unlike forecasting, which relies on past data to predict risks and returns. Foresight manages complexity by framing problems, considering multiple paths, bringing current assumptions to light, searching for weak signals, mapping the system, choosing drivers of change, developing scenarios, and testing assumptions to discover potential challenges and opportunities. It is vital for practitioners to grasp that foresight involves each scenario planning and forecasting.
This approach enables investors, policymakers and strategists to anticipate future developments and be sure that proposed policies are viable under various plausible future scenarios. Sharing mental models and developing robust policy assumptions helps decision makers prepare for future challenges.
Scenario planning: A protected place
Scenario planning is crucial in investment management. By creating plausible representations of future developments, it helps investors evaluate options and make decisions. This method encourages practitioners to query assumptions, adjust strategies based on recent information and avoid tunnel vision. TUNA Framework (turbulence, uncertainty, novelty, ambiguity) from the University of Oxford also helps investors overcome challenges by encouraging imaginative pondering and difficult established assumptions.
Navigating a TUNA world requires rethinking assumptions. Scenario planning provides a protected space to acknowledge uncertainty and encourages the imagination of previously unthinkable developments. Strategic foresight and scenario planning are essential tools for navigating future uncertainty in investment management. They provide structured approaches to anticipate and prepare for disruptive change, enabling investors to make informed decisions and develop strategies which can be robust to a spread of future scenarios.
Practical use
In most organizations, responsibility for scenario planning typically rests with the strategy department. In the investment industry, roles akin to Chief of Foresight or Scenario Officer aren’t often found. Rather, scenario planning is mostly a collaborative effort amongst various strategists, leveraging the collective imagination and expertise of assorted team members to explore multiple plausible future scenarios.
By fostering resilience through considering diverse outcomes, strategists can higher anticipate and manage the complexities and disruptions that characterize today’s dynamic environment. A collaborative effort is crucial to develop robust strategies which can be resilient across a spread of plausible future scenarios and improve decision-making in an unpredictable world.
